South Korea’s free trade agreement with China is scheduled to take effect within this year, as the bilateral trade pact gained final parliamentary approval in Korea on Monday.

As a result, the two countries will implement the first set of tariff reductions within this year and a secondary round of tariff cuts in about a month’s time starting from Jan. 1, 2016.

The Korea-China FTA will immediately eliminate tariffs on Korean exports to China worth around $8.7 billion annually, eventually lifting tariffs on China-bound exports worth around $45.8 billion over the next 10 years, according to the Ministry of Trade, Industry and Commerce.

The deal is forecast to boost bilateral trade relations and strengthen the competitiveness of Korean exports to China, which makes up around 26 percent of the country’s total exports.

More importantly, the pact lifts a number of nontariff barriers, including specific conditions and market requirements, which have long stood in the way of many local small and medium-sized enterprises seeking to enter Chinese markets.

For instance, export items valued under $700 no longer require a certificate of origin, while customs processes are now concluded within 48 hours. Moreover, the Chinese government has set up regional bodies to oversee and mediate any issues related to customs and strengthened intellectual property protection.

“In regards to trading with China, nontariff barriers had been the bigger obstacle cited by Korean exporters to China than the tariffs themselves,” said Suh Jin-kyo, executive director of the international trade department at the Korea Institute for International Economic Policy.

“By significantly lowering nontariff barriers at once, the Korea-China FTA is expected to greatly ease the burdens currently felt by many Korean exporters,” Suh said.

The forthcoming tariff reductions’ most visible effects are to strengthen the export value of Korean-made high-end consumer goods and electronics, as well as fashion items, baby products and medical devices, according to the Trade Ministry.

“Though the trade deal will positively impact most industries, high-end consumer goods and electronics, including rice cookers, washing machines and refrigerators are likely to reap the most benefits,” said the KIEP director.

Machinery parts-makers -- which already enjoy a sizeable presence in China -- and advanced medical device producers are further expected to see heightened gains as related tariffs will be immediately lifted starting this year, according to Suh.

Market analysts also cast a positive outlook for Korea’s cosmetics, travel and entertainment industries, which will see gradual improvements in business conditions over the next 10 years.

Korean cosmetics exports are forecast to surge as their tariffs, which currently exceed 10 percent, will be eliminated over the next 10 years under the bilateral trade deal, according to Hana Financial Investment.

Meanwhile, Korean travel service providers will be able to directly set up offices in China and sell their own travel packages by establishing joint ventures with major Chinese travel companies, Hana said.

Meanwhile, the mobile phone, computer, steel and semiconductor industries are expected to collect few benefits from the Korea-China FTA, as many of these goods already enjoy tariff-free status under existing treaties. Automobiles were excluded from the trade deal, according to Shinhan Investment Corp.

On the other hand, the agricultural and fisheries sectors are expected to face an influx of cheap competing products from China, with the Agriculture Ministry forecasting damages of around 1.42 trillion won ($1.23 billion) in the agricultural segment alone over the next 15 years.

Addressing such concerns, the government announced plans Monday to raise 1 trillion won in compensation to assist farmers and fisherman hit by the trade liberalization over the next 10 years.

Moreover, as Korea eliminates tariffs on key Chinese imports in line with the FTA stipulations, the country’s tariff earnings are forecast to decrease by 1.42 trillion won annually, or around 5 billion won daily, over the next 10 years, according to a joint analysis report by KIEP and three related research institutions.

But the report expected new tax gains stemming from additional economic growth linked to the Korea-China FTA to make up the gap.

By Sohn Ji-young (jys@heraldcorp.com)